Which of the following predicts the existence of an optimum capital structure for an individual firm that is financed with both debt and equity? (think of the case on Blaine Kitchenware)

A.

None of the answers are correct

B.

Pecking-Order Theory of capital structure

C.

Modigliani-Miller Proposition II (with corporate taxes)

D.

Modigliani-Miller Proposition I (no taxes)

E.

Market-Timing Theory of capital structure